Transcription
And hello to everyone and welcome to IQ Invest for a new analysis. And as promised last week, we are going to talk about Intuit. I mentioned it to you in particular in the video about Service Now. So I bought Intuit last week as part of my June DCA. I bought Meta and I bought Intuit. And so I bought it at a price of 329 dollars, which is the lowest for Intuit since 2021. Why? Quite simply because it is undervalued, but also because I believe it is very well positioned in terms of software to benefit from AI. So I will explain everything to you in this analysis and I will show you why, in my opinion, Intuit is a superb opportunity right now and perhaps one of the best opportunities, especially with this little madness of the SaaS-pocalypse that we are currently experiencing.
So, to put it briefly, Intuit is an American company, of course, it is listed on the NASDAQ under the ticker symbol INTU. It has a market capitalization of 81 billion dollars. It is not eligible for the PEA (Plan d'Épargne en Actions), it pays a dividend, and it is a technology company. It was founded in 1983 by Scott Cook and Tom Prulks, and they launched Quicken, their first software, which is a personal finance tool. In '91, they launched QuickBooks to compete with Microsoft Money. So, accounting software, this time for small and medium-sized businesses. In '93, they went public on the Nasdaq, and in '94, there was a takeover offer by Microsoft for 2 billion dollars which was blocked by regulators. Between '95 and 2009, they made many company acquisitions: Certware, Computing Resources, Rock Financial, Merchant Solutions, Digital Insight, and Pay Cycle. And in parallel, they notably launched TurboTax, their second flagship software. In 2016, they sold their historic Quicken software to HIG Capital, and in 2018, Sasan Goodarzi became the new CEO of Intuit, replacing Brad Smith. Knowing that the original founder, Scott Cook, left a long time ago. In 2020, the acquisition of Credit Karma took place, another of Intuit's software products, which we will look at shortly. Between 2024-2026, Intuit is focusing notably on AI and has laid off over 4,800 employees during this period.
In terms of its business model, no surprise, it's SaaS. So for those who still don't know what SaaS means, it means Software as a Service. So, in short, these are software applications available online, generally in a web browser, and by subscription. Exactly like the Bagger application, for example. Intuit's main software are QuickBooks, which is the largest. So it's the accounting, invoicing, payroll, cash management software, etc. The equivalent of what we have in France with Penny. By the way, I didn't know, but Penny is a French software. Then we have Mailchimp, an email and marketing software, probably also the benchmark in the field. In any case, it's a competitor to Mailjet in France. I think Mailjet is also French if I'm not mistaken. Then we have TurboTax. TurboTax is tax filing software for the general public. And here, there is also ProSeries for accountants and professionals. So TurboTax is actually something we don't really have an equivalent for in France, because in France, we have the free portal impots.gouv.fr which already does your tax return and pre-fills the various boxes for you. Unless, for example, you have capital gains or losses or dividends to declare, etc., where it's always a bit of a pain, but let's say that for income tax, it's always pre-filled. You always have your pay slips that are already communicated to the tax authorities. So in fact, you never really need to fiddle too much with the tax website. This is not the case in the United States. In fact, in the United States, there is no equivalent to impots.gouv.fr. It's still old-fashioned forms, and that's why there are software like TurboTax that actually allow you to fill out these forms much more efficiently. Then we have Credit Karma, a credit score tracking platform, so the FICO score, VantageScore. If you listened to my FICO analysis, you know very well what I'm talking about. And which also allows you to manage your personal finances.
So obviously, a large part of the revenue today is in the form of subscriptions, about 38%, but not only, since we have, for example, TurboTax which is sold individually for a single tax return, so it's relatively seasonal, and they also receive revenue from payments via Credit Karma and QuickBooks Payments since they offer direct payment of invoices through QuickBooks. To give you some ideas, at Bagger, by the way, Bagger, if you don't know, is the best app for stock picking. So if you do stock picking, go check it out. You have the link in the description. 14 days free trial, you have 40 years of historical data, over 50,000 stocks available in the screener, a watchlist tool, a portfolio tracking tool, a stock valuation tool. In short, you have a lot of things to discover. So at Bagger, we use American providers, particularly for our data. We have several American providers, and well, they send us QuickBooks links. So it's quite funny, but yes, you should know that you can pay directly via QuickBooks. They send you a link, you have a credit card payment page. Then, you have the different revenues of Intuit that I've put here. Now, I'm not sure if there isn't a mix between discontinued segments and non-discontinued segments. So I haven't looked into it too much, but you should know that sometimes, depending on the companies, you have companies that report several types of segments, and it's sometimes quite difficult to differentiate between the two. So here you can see that, for example, we have two discontinued segments. We have Consumer Service and ProTax, which are discontinued. So potentially, we have a sum here that results in duplicate segments. So that needs to be verified. And on the other hand, we also have the breakdown by revenue. And here, we have two segments. We have Global Business Solutions Operating Profit 60% and Consumer Operating Profit 40%. So this is QuickBooks and Mailchimp, and this will be TurboTax and Credit Karma, which are for individuals, whereas QuickBooks and Mailchimp are for professionals. So you can see that we have a breakdown of approximately 60-40 between professionals and individuals in Intuit's revenue.
In terms of their AI strategy, Intuit is developing what they call GenOS, an ecosystem of specialized virtual agents that will help users with specific workflows. If you listened to my Service Now analysis, you have a good idea of what I'm talking about. For example, accounting in QuickBooks or creating marketing campaigns in Mailchimp, we will have integrated workflows directly into the software. So the goal of AI will not be to replace Intuit's software, which is currently impossible, but rather to automate time-consuming tasks such as writing emails or reconciling invoices in accounting solutions. By the way, this is already more or less the case for those who have already had a business. If you have already used, for example, PennyLane, you know that you already have, for example, OCR (Optical Character Recognition). This is a form of AI in a way, since it's a bit like machine learning. In fact, it's machine learning that allows you to recognize characters on PDFs, on PDF invoices, to recognize the amounts and thus automatically enter the amounts and not have to re-enter them manually. This is OCR. So technically, AI is not new in all these software applications; we already have a lot of it. It's just that today, we've stopped talking about machine learning as we used to and started talking about AI. But overall, all this is to say that many workflows will be automated thanks to AI agents in this type of software.
Regarding Intuit's markets, it operates in two main markets: Business Platform and Consumer Platform. As I showed you in the segments, these are indeed the two main segments. We have Business and we have Consumer. So they separate them like that. So in Business Platform, as I told you, it includes QuickBooks and Mailchimp, and the market size is estimated at 186 billion dollars. So 87 billion for SMEs and 89 billion for mid-sized companies. So SMEs are small and medium-sized enterprises. Mid-sized companies are intermediate-sized enterprises. So they call them small business and mid-market, I believe, in English. Growth is estimated between 10 and 15% per year over the next few years in this market. And then we have Consumer Platform, so TurboTax and Credit Karma. This is smaller, around 47 billion dollars with a lower growth rate of 6 to 10% per year. With 18 billion in revenue in 2025, Intuit is still far from having saturated the market in which it operates. You see, 18 billion, so 180 + 50, we are at 230. Which means we are not even at 10% of total market share compared to the addressable market, or TAM (Total Addressable Market).
In terms of its customers, it serves several types of customers: individuals for TurboTax and Credit Karma. Also small businesses and freelancers for QuickBooks and Mailchimp. SMEs and mid-sized companies for QuickBooks, and notably QuickBooks Advance or Intuit Enterprise Suite. So this is Intuit's new ERP that they are trying to push, notably to compete with Oracle, SAP, and Microsoft. And finally, we have the market of accountants and tax professionals who also use QuickBooks for their clients, but also ProSeries with more advanced solutions, Lacerte Pro, ProConnect, and Tax Online, because you should know that at least for Penny, it works like this. I imagine it's the same for QuickBooks, but for Penny, your accountant provides you with the software. So it's highly likely that in the United States, it's the same when you use an accountant, there's a good chance that this accountant is familiar with QuickBooks and will encourage you to use QuickBooks or even provide it to you. It can also be part of their service.
Regarding competitors, then you have to look at each software. For QuickBooks, it's about 85% market share in the United States. So that's colossal, it absolutely dominates the market, and the main competitors are Xero. So that's an Australian software, and Sage Group, which share about the remaining 15%. So Sage, I didn't know, is an English company. It's quite well-known in France, actually. Sage is quite used by companies, at least by large companies for accounting, or rather I would say mid-sized companies. There you go. In any case, personally, I know I've seen Sage at clients I've worked for. Mailchimp, then in the US, market share. So again, it's colossal. And the remaining 30% are contested between several solutions like MailerLite or Brevo in the United States. As I told you, in France, we also have Mailjet which is quite present in the market. Then we have TurboTax. So that's about 60% of the DIY market. So that means individuals who do their own tax returns. And the main competitor is H&R Block. Then we have Credit Karma. So much smaller, about 10% market share, with main competitors SOFI and Cash App. Cash App, which is developed by the company Block. In short, for these three solutions, the most important ones, Intuit has over 50% market share and a near monopoly with QuickBooks in the United States. So that's a colossal competitive advantage. And regarding suppliers, like all SaaS companies, we don't really have direct suppliers in the strict sense, but we can mention Green Dot Bank and Webbank for QuickBooks payments and the loans it can provide via QuickBooks. OpenAI and Anthropic to power the AI solutions, obviously, and AWS, Amazon, for hosting and cloud infrastructure.
In terms of management, we find Sasan Goodarzi, whom we've already mentioned, who is the CEO. He joined Intuit in 2004 and then led major operational divisions of the group before becoming CEO in 2019. So that's him. Then we have Sandeep Ojha, who is CFO. So that's him, a former investment banker at Goldman Sachs. He also worked at Visa. He joined Intuit in 2015 and was promoted to CFO in 2023. And finally, we have Alex Balaz, who is CTO. So he joined Intuit in 1999 as a senior software engineer and climbed all the ranks before becoming CTO in 2023, and he is the chief architect of GenOS, Intuit's AI system.
Regarding shareholders, we have Scott Cook, one of the co-founders, who still holds about 1.5% of the shares. So you see him here on the table of the top 10 shareholders, and insiders globally represent 2.16% of the shares, including Scott Cook, so that's very, very low. We clearly have a predominantly institutional ownership and little skin in the game at Intuit.
Quantitatively, we have a score of 18.5/20, which is very good. Revenue growth is at 19%. EPS is at 14%, free cash flow is at 19%. We have EPS growth that is not higher than revenue. So this is mainly due to goodwill. You will see that it has quite high goodwill due to all the acquisitions it has made. We also have free cash flow per share growth that is higher than revenue growth. How profitable is it? We have a gross margin of 80%, an operating margin of 27%, a net margin of 21%, and a free cash flow margin of 36%. That's colossal, with positive margin growth. In terms of capital, we have a CAPEX to OCF ratio of 1.69, 42% R&D to OCF, and 69%, almost 70% marketing to OCF. In terms of the balance sheet, debt to EBITDA is 0.01, so almost negligible. Interest Coverage is almost 16, and goodwill to assets is 7.35%. So you can see it has a lot of goodwill. In terms of returns on capital, ROE is 22%, ROIC is 14%, ROC is 21%, WACC, and ROI is 57% with positive growth for all of these. And if you're wondering where I get all this data, it's of course on the Bagger app. So you can see in the quantitative tab, you have a lot of data available, a lot of charts, including, as I told you, the different returns on capital. You can see free cash flow return on capital, return on assets, ROI (Return on Incremental Invested Capital), and you can set the period you want. In short, these are all the charts. And in the finance tab, this is the latest feature that came out on Bagger. You can display any metric and create a custom chart. So here, for example, I've put revenue, I can put revenue and EPS, for example. And you can see that I can compare the growth of the two, but not only that. I can also, if I want, for example, go to metrics and ratios, I can put, you know what? Net margin. There, I'll put net margin. And net margin, I'll make it a curve. I'll make it a curve and I'll remove the forecasts. And like this, we can look at the revenue growth. You have the EPS below, here 12% revenue, 14% EPS, 1.44% net margin, and you can see these three curves superimposed. You can then download the chart if you want and export it as a PNG. In short, you can do a lot of things. You can also now change the color of the series. So a lot of new features have been released. You have, of course, income statement, balance sheet, cash flow, metrics, and ratios. You also have all the segments and KPIs. Here you can see the revenue. So these are all the segments I told you about earlier. You have the revenue breakdown, you also have the Key Performance Indicators. So this is TurboTax Online revenue, for example. In short, you have a lot of data for all companies. So go check it out. You have the link in the description, 14-day free trial.
Regarding forecasts, we are looking at 13% revenue growth and 23% EPS growth. In terms of dilution, we have +0.52% in outstanding shares. So we have slight dilution, and we have a 26% SBC ratio to free cash flow. So we have quite a bit of stock-based compensation, but it's much less critical than Service Now, which was over 40%, remember. So, does it pay a good dividend? Yes, 15% annual growth, 31% payout ratio, so that's quite reasonable, and 13 consecutive years of increases. And regarding the stock price, well, it's been beaten up, of course, it's not beating the S&P 500 because, in fact, since the big drop of the SaaS-pocalypse, you can see that all SaaS companies have been beaten up here. But on the other hand, it still has better growth than its two other competitors. So here I've put Xero, H&R Block, and The Sage Group. So it has better growth than H&R Block and The Sage Group, but it doesn't have better growth than Xero, which is the line you see here in orange. And so, if we summarize all of this, we get 25/32, so 15.62/20. So we have a good overall score.
In terms of fundamental analysis, let's start with the strengths. It has a near monopoly in the US market with over 85% market share in accounting with QuickBooks and over 70% in marketing with Mailchimp. So that's colossal. In terms of switching costs, it has enormous switching costs. So it's not just business clients, but also accountants who use QuickBooks. And moreover, they often have years of accumulated accounting data. We also have cross-platform integration and upselling that works, since a user of TurboTax plus Credit Karma combined, for example, generates 38% more ARPC than a user who would only use TurboTax. And finally, we have a magnificent quantitative profile, nothing to complain about, even if we have a slightly high goodwill and slightly high SBC, as you saw due to recent acquisitions, but we have almost no debt, so that's very, very good.
In terms of weaknesses, we have a slowdown in growth for consumer software, notably TurboTax, which recorded only 7% growth in the last tax filing period. So that's very low. The integration of Mailchimp's acquisition has also been disappointing since they bought the software, which has not met the objectives set by management, with only 2% growth shown, and about half of Intuit's growth relies on price increases today, not organic growth. So that could be a problem. But you know, in the case of FICO, for example, with Fair Isaac, I told you that I didn't like at all the fact that the company relies mostly on price increases, especially since for me, it was a sector that could be heavily regulated. However, that's not the case here. The software sector in which INT operates cannot be regulated as much as the credit score sector, which is a near monopoly and is also politically sensitive. Here, in any case, the only thing that would prevent Intuit from increasing its prices is competition. So it has no worries on that front. And over 85% to 95% of revenue comes from the US. So there is extreme concentration on a single domestic market, and QuickBooks struggles to export internationally, with only 4% growth abroad.
In terms of opportunities, we have the launch of Intuit Enterprise Suite, Intuit's ERP, which increases its TAM with mid-sized companies and positions itself as a modern, cheaper, and more disruptive ERP than legacy players like Oracle, SAP, or Microsoft. So that's a very, very good point. I didn't know Intuit had launched an ERP before I invested. So ERP, I forget the acronym, it's Enterprise Resource Planning. I think you'll correct me in the comments if that's not right. And even if the consumer market is weak for TurboTax, the AI integration is promising, since we have TurboTax Live, which combines AI plus human expert, and which has seen its clients increase by 38% to help them with their tax returns. And on average, an SME uses between 7 and 25 software applications to run its business, and thanks to GenOS and Intuit's AI strategy, they are implementing agents and solutions that automate a large part of the workflows, encouraging clients to centralize their tools with them. And what I like about Intuit, a small aside, is that we did the analysis of Service Now. Service Now is for very large accounts. Service Now is present in the Fortune 500. Same for Salesforce. Salesforce, for example, is present in the Fortune 500, it's for very large companies. Adobe is the same. Whereas Intuit, they are really positioned in small and medium-sized businesses and mid-sized companies. This means they have a much more fragmented, much more diversified market, and potentially more resilient, but perhaps also with less switching costs and more subject to bankruptcy, since many more small and medium-sized businesses go bankrupt than large corporations. So we'll see, but personally, I think it's a strength for Intuit to be positioned precisely in this segment of SMEs and VSEs, knowing that, in addition to that, with QuickBooks, they have an entry point into this entire colossal market, and they already have over 85% of the market and will be able to push their ERP solution relatively easily.
So, threats. In a world where AI models become much more powerful, there is a risk of total disruption of human-machine interfaces. This is the risk that always comes up. So a total loss of utility for software, personally, I don't believe in it, but it must be mentioned. On the TurboTax side, there is a real desire from the US government to provide free solutions for tax filing with IRS Direct, a bit like impots.gouv.fr in France, but we all know the speed of execution of governments and the low quality of their products and services. So I'm not worried about Intuit. And there is the price war, which is fierce, potentially the most serious threat, with Xero becoming increasingly aggressive in accounting, and Mailchimp also facing a lot of competition, competition that will potentially intensify with AI, since it's becoming easier to develop software and code is becoming a commodity.
Then, in terms of competitive advantage, so we have switching costs, which is the main moat, obviously, it's the main competitive advantage, as for many software, especially for QuickBooks, which keeps all customer history, client accounting integration, it manages employee payroll, and a migration would be an enormous operational complexity. Same for TurboTax, it keeps all the individual's filing history. So it allows for automated data entry from one year to the next, which is a precious time saver that many are willing to pay for. We also have network effects, which is a secondary moat, since QuickBooks and TurboTax are the benchmarks in the US, which means everyone speaks this language. And if you work with an accountant, there's a good chance they know QuickBooks. And the more accountants use it, the more businesses there are, and the more accountants there are, and so on, since the more accountants will recommend it to their clients, the more clients will use it, the more accountants will get used to it, the more they will recommend it, and so on and so on. In short, QuickBooks becomes the benchmark and becomes a common language for accounting in the United States. Similar for TurboTax, by the way, they are common languages. Then we have intangible assets. So here, we have the brand, the know-how, Intuit's technologies, which are a smaller moat in themselves, and Morningstar's rating is Narrow for Intuit's competitive advantage. So a small competitive advantage in terms of fundamental list.
So, is it a market leader? Yes. In a growing market? Yes. Pause if you want to read the answers in detail. Does it offer better products than its competitors? Yes. Are its revenues recurring and predictable? I put no. Are they diversified in terms of products? Yes. Are they resilient in terms of supply chain? Yes. Does it have a large and durable competitive advantage? Yes. Are there barriers to entry? No. Is it protected from product disruption? No. Does the management think and act like founders? No. Is there skin in the game? No. And is it oriented towards its shareholders? Yes. So our fundamental score is 7/12, or 11.6/20. So we are average here.
In terms of valuation, on Bagger, we have forecasts of 13.22% annual revenue growth and 23.95% annual EPS growth. So Bagger's forecasts, by the way, come from the consensus of analysts. So it's the average of the analysts' consensus. So we have revenue growth in line with the market and strong EPS growth, probably catching up on the free cash flow margin and the decrease in goodwill. In terms of management, Intuit projects revenue growth maintained at 20% per year until 2030 as part of the Bolt 2030 plan for the year 2026. And for the year 2026, the guidance is 13% to 14%. So 20% per year until 2030. Personally, I think that's very, very ambitious. And Morningstar, they forecast more modest growth of 10.3% per year for revenue and 12.6% per year for operating income. So if we make some small price assumptions here, I've amused myself by creating three scenarios. So a bull scenario that follows management's recommendations. So here, I've put 20% growth in free cash flow per share and a final price to free cash flow of 30. Why 20? Because it's the estimated revenue growth. If we assume that the free cash flow margin remains flat, it means that free cash flow per share growth follows revenue growth. So here, we would have a fair price of 1269 dollars and an estimated return of 50% per year. So that's absolutely colossal. Of course, the company is currently around 300 dollars with a margin of safety of almost 80%. If we take a neutral scenario, so here it's more the analysts' estimates and Morningstar's estimates. So we would start with 12% annual growth for free cash flow per share and a final price to free cash flow of 25. So here we would have a fair price of 749 dollars, an estimated return of 34% per year, and a margin of safety of 60%, so still colossal. And if we take a bear scenario, absolute margin of safety. Here, I've taken 8% annual growth in free cash flow per share, so very, very low, and a final price to free cash flow of 15, so ridiculous. And we still get a fair price of 374 dollars, 17% annual return, and a 20% margin of safety. So you see that even with an absolutely catastrophic scenario, 8% annual growth and a final price to free cash flow of 15, despite all that, we would be profitable buying at the current price. And I will show you in the valuation tab. Personally, the assumption I've made for the final valuation is free cash flow per share. So I've taken 10% estimated growth in free cash flow per share and a final multiple of 20. So you see in the return matrix that we have a perfect margin of safety. We have almost everything in green. This means that even if Intuit, by bad luck, only achieves a price to free cash flow of 15 instead of the 20 I've projected, you can see that we would have an annual return of 18%. And if it even does 15 and 7% growth, we are still at 15% return. So we really have a company that is so undervalued today that no matter what scenario you take, you are profitable on the valuation. And if you look at the historical evolution of the price to free cash flow, we are at the lowest since 2010, globally, almost at an all-time low in Intuit's valuation. So it's really ridiculous, and in my opinion, it's potentially the best opportunity right now. In any case, for software, I've rarely seen such an undervalued company. It offers a much better margin of safety than Service Now, for example. Of course, I specify that this is not investment advice. Do your own research and form your own opinions.
So, the question to always ask in this context is, why is it going down? So it's not all AI's fault, because Intuit has had recent operational setbacks that explain this sharp drop. First, there's the recent underperformance of TurboTax due to a general decline in filings with the IRS, the American tax authority. So only 7% growth in the last fiscal period, which is very, very low. Mailchimp has had integration difficulties, even a total integration failure, with almost non-existent growth of 2% per year since the acquisition. So this is a typical example for me of diversification. A company that wants to buy competitors to diversify but ends up reducing its growth and reducing its returns on capital. So potentially, Intuit would have been better off not buying Mailchimp on this occasion. Layoffs as well, 17% of its total workforce. It's restructuring for the AI era, but of course, that scares the market. And IRS Direct File, the free and pre-filled tax filing solution, which directly threatens TurboTax's market, but which has not yet been released. Finally, of course, the threat, the elephant in the room, which caused the SaaS-pocalypse. Here you know the story, no need to go back over the causes of the SaaS-pocalypse. And you can see the price to free cash flow, which has collapsed, going from a median of 32 to about 10 today for Price to Free Cash Flow, which is simply ridiculous.
So, to conclude on the Intuit thesis, is it good or not? Personally, I think it's facing operational difficulties and a slowdown in its growth. But for me, the AI threat is unrealistic today, and the narrative is changing in the markets. When you look at the quality of Intuit's business at this price, it's a no-brainer for me. Regardless of the growth and final price to free cash flow hypothesis you make, you will be profitable based on the current valuation. It's just crazy. So even if the company only achieves 8% annual growth in its free cash flow per share and trades at 15 times free cash flow, we have a margin of safety of over 20%, which is ridiculous, and it's currently at 10 times free cash flow. In short, the markets are clearly irrational here, and I've taken a small position and I'll be looking to increase it if it stays below 400 dollars. So that's the line you see here. So this is the smallest position in my portfolio for now, and I have two software companies. I have Constellation Software and I have Intuit. So, Intuit is a company I could indeed increase, and maybe I will increase Constellation Software, I don't know, we'll see. In short, tell me what you think of Intuit in the comments. Do you think it's a good opportunity to play the rebound after the SaaS-pocalypse? Don't forget to subscribe to the channel if you haven't already, leave a thumbs up on the video, and with that, I'll see you next time for a new video.